California’s American Indian tribes scored a minor victory this month in their ongoing efforts to convince state regulators the card room industry is operating house-banked games in violation of state laws and the tribes’ constitutional exclusivity to offer casino-style gambling.

The backstory of tribes vs. card rooms

The tribes have been engaged in a four-year battle to get regulatory changes that gambling experts believe could cripple the state’s $1 billion card room industry, a major generator of taxes and jobs for several California municipalities.

But the tribes – also a major employer and economic driver for local communities – contend illegal card room activity is threatening their sovereign right to operate house-banked casino games guaranteed in a 2000 ballot initiative approved by more than 60 percent of the voters.

The new letter changes things

The California Bureau of Gambling Control (CBGC), in a Feb. 19 letter signed by bureau chief Wayne Quint, said the agency will no longer accept card room applications for new table games that do not require “continuous and systematic rotation” of the player-dealer position.

The letter by the CBGC, an agency of the state Attorney General, overrides a Dec. 20, 2007, opinion by former chief Robert Lytle that the deal need only be offered to other players and not necessarily rotated.

The Lytle opinion – which greatly facilitated the use of lucrative third-party proposition player (TPPP) firms by the state’s 80 card rooms – was mailed out just days before Lytle left the bureau to work as a card room owner and consultant. AG Kamala Harris in May 2013 filed an accusation seeking revocation of Lytle’s licenses to work in the industry.

Quint’s directive is limited to new table game applications and does not mandate that card rooms rotate the deal on games currently being played that cite the Lytle opinion.

The order remains in effect through June 30, when the bureau will “issue a notification of the revised enforcement and game approval practice relating to the rotation of the player-dealer in a controlled game,” Quint said in his letter.

The tribes’ argument on house-banked games

Tribes say card rooms are using TPPPs to essentially operate house-banked versions of blackjack, pai gow poker and baccarat in violation of business codes, gambling regulations and state law prohibiting the clubs from offering banked and percentage card games.

“Card rooms no longer rotate the bank in the playing of their games and allow so-called third-party proposition players, essentially a partner of the card rooms, to maintain that bank,” Leland Kinter, chairman of the Yocha Dehe Wintum Nation, told a state Assembly committee.

“This practice directly violates the California Constitution and penal code and the tribal exclusivity granted to tribes by California voters.”

The card rooms’ counter arguments

Card room owners contend they are operating in compliance with state law and regulations. Many claim that without TPPPs they could not compete with the 60 tribal casinos in California that, together, generate more than $7 billion a year.

“The tribal community has very strong feelings about the issues,” Kyle Kirkland, president of the California Gaming Association, a card room lobby and trade group, told Global Gaming Business magazine.

The crux of the diverging opinions on house-banked games

Tribes are attacking the card room industry on three levels:

Tribes say contracts between card rooms and TPPPs – which have evolved from poker “shills” paid by the clubs to state-licensed firms banking high stakes table games – violate state gambling regulations and business codes prohibiting club owners from having “any interest, whether direct or indirect, in funds wagered, lost, or won.”

Tribes also claim the card rooms are offering table games such as blackjack, pai gow and baccarat in violation of penal codes prohibiting banked and percentage card games.

Finally, tribes argue that because of TPPP profits, card rooms are waiving player fees, or betting “rakes” – once their sole source of income –and not rotating the deal as required by law.

Meanwhile, the United Auburn Indian Community and card room operators are funding opposite sides in a lawsuit by four gamblers accusing the shuttered Casino Royale in Sacramento of not rotating the deal, a possible precedent-setting case.

A high-stakes game based on the law

The stakes in the ongoing conflict between the tribes and card rooms are high.

Communities for California Card Rooms claim the industry has a $1.8 billion economic impact statewide, supports more than 22,700 jobs and annually generates in excess of $270 million in federal, state and local taxes.

But the industry took a major hit in 2000, when the Proposition 1A ballot initiative and constitutional amendment ushered in the era of compacted tribal casinos. The number of licensed card rooms fell from about 130 to about 80.

Regulatory restrictions on the use of TPPPs said one state regulator “could cripple the industry and throw some municipalities into default.”

The tribes, meanwhile, whose casinos employ more than 50,000 mostly non-native workers, contend the card rooms are stealing their table game players and encroaching on their sovereign right to operate banked games.

New regulations for card rooms in the works?

The California Gambling Control Commission (CGCC) has been holding hearings on proposed regulations requiring increased reporting by card rooms and TPPPs.

The proposed regulations – already the subject of six CGCC hearings and workshops – are challenging in view of penal codes prohibiting clubs from offering house-banked games and regulations forbidding club owners from even indirectly profiting from wagers.

Contractual arrangements between card rooms and TPPPs often include expenses for everything from advertising and marketing costs to parking spaces to shuffling devices.

“That’s the issue that is critical here,” Yocha Dehe attorney Jeffrey Butler said at a Dec. 9 CGCC hearing. “The code doesn’t say that the card rooms are prohibited from having some kinda, sorta interest in the outcome of games. It says the card rooms are prohibited from having any interest – whether direct or indirect – in the outcome of the games.

“There’s no auditor … that can guarantee that none of those funds that the TPPP pays” a card room is not derived from wagers, he said.

Eyebrows were raised at a recent CGCC hearing when Holly Kinney, manager of the bureau’s TPPP unit, acknowledged, “Because a card room establishment cannot bank its own games, it contracts with a third party to act as an independent contractor to provide the service.”

Could the tribe-card room disagreement end up in court?

Tribal attorney Scott Crowell said the remark supports the contention by tribes that TPPPs are simply a means by which card rooms surreptitiously operate around the law.

“I think frankly a court would slice right through this and say, ‘This third-party provider nonsense is just a way for an entity that can’t offer house banked games to buy a bank and … make it a house-banked game,” Crowell said.

The issue may, indeed, end up in court.

The state’s poorly funded, bifurcated regulatory system – comprised of an adjudicatory commission under Gov. Jerry Brown and a compliance and enforcement bureau under Harris – are in a difficult spot in weighing tribal and card room interests.

Brown reportedly is concerned about municipalities that rely on card room revenues. Harris, according to sources, is a senatorial candidate aware that tribal support on Capitol Hill is more valuable than California card rooms.

While only a handful of tribes are actively lobbying the issue – notably United Auburn, Yocha Dehe, Pala Band of Mission Indians and the Viejas Band of Kumeyaay Indians – others are monitoring the matter.

“The clients I represent in California generally don’t have the time or the resources to be involved in this issue,” Crowell said. “But that shouldn’t be interpreted that they don’t take it very seriously.

“This issue is a serious concern to a number of tribes through the state.”

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Dave Palermo -
Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law.